Dubai set to increase stake in Standard Chartered

Dubai is considering raising its stake in Standard Chartered to as high as 20 per cent at a cost of $7bn, according to sources in the oil-rich state.

The country's state-owned investment company, Istithmar, recently splashed out $1bn for a 2.7 per cent holding in Standard, making it the biggest shareholder behind Temasek, an arm of the Singapore government, which has nearly 12 per cent.

The prospect of Dubai increasing its holding in a bank long rumoured to be a takeover target is bound to increase speculation about an eventual stand-off between the Singaporeans and Dubai. Last year the two fought a battle for P&O, the UK ports group, which Dubai won.

Significantly, perhaps, the man behind Istithmar is the same individual who saw off Temasek at P&O. His name is Sultan Ahmed Bin Sulayem, and observers say he has considerable resources at his disposal for foreign investments.

A London-based investment banker said: 'What people expect is that Istithmar will act slowly, increasing its stake to 5 per cent, probably quite soon, and then to a level that is similar to Temasek's. But it must be a strong possibility that it could go much higher to block off the Singaporeans, and thereby lay the foundations for a future bid battle.'

A spokesman for Standard said: 'We don't comment on market speculation. But we have a clear strategy and strong momentum. We view any interest shown by investors as an endorsement of our growth strategy and performance.'

Mervyn Davies, the chief executive of Standard, has long maintained that the bank is happy pursuing an independent path and is not courting bidders.

Standard has attracted interest in the past from American rivals, such as JP Morgan, Citigroup and Bank of America. Royal Bank of Scotland under Fred Goodwin has also run a slide rule over Standard, which has businesses in the Middle East and Africa as well.

The bank is viewed in the City as an ideal way for shareholders to gain exposure to some of the globe's fastest-growing markets, particularly in Asia. Standard has been investing heavily in the region in the past 18 months, firing off bids for banks in Taiwan, Pakistan and South Korea.

Davies has revived the fortunes of the bank following a period of management infighting, which led to the loss of two chief executives before his arrival in 2003.